International business operations could bring you larger profits if you registered a company in an offshore jurisdiction. This business instrument allows saving on taxes because tax treatment is highly beneficial in offshore zones. Below we discuss the meaning of the word ‘offshore’ as it is used in the economic sense. After that, we explain the difference between offshore and mid-shore jurisdictions. Then we list the main advantages that an offshore or mid-shore company can bring. Finally, we provide lists of most popular offshore and mid-shore jurisdictions.
An offshore zone in simple words
In the economic sense, the word ‘offshore’ refers to a country that charges zero taxes on locally registered companies. The essential condition that the companies have to meet in order to remain tax-exempt is as follows: they shall conduct no business operations in the offshore country where they are domiciled. In other words, their international business operations are exempted from taxes. In case they do business at home, they are taxed and the tax rates can be quite high.
How do jurisdictions that levy zero taxes on companies manage to fill their national budgets? The matter is that they charge annual company registration fees. The fees are not very high but the fact that the number of companies registered in an offshore country is high explains makes the overall revenue substantial.
Another important quality that an offshore jurisdiction boasts is its ability to efficiently protect the company UBOs’ information from third parties. Please don’t take us wrongly: we do not mean to claim that an offshore-registered company can help you conceal your incomes from your home country’s authorities thus evading taxes. Official bodies have access to all corporate information these days. Having a ‘secret’ company is impossible. At the same time, you can hide an offshore company from the eyes of your competitors, general public, ex-wives, greedy relatives, and all other non-official parties. Offshore countries are good at protecting the confidentiality of personal information.
Relaxed reporting requirements to companies is one more characteristic of offshore countries. We must note, however, that these practices have been changing. Today, most offshore jurisdictions require that companies keep financial records even though they don’t have to submit them every year. Again, an offshore-registered company is NOT an instrument for carrying out secret business operations.
Examples of offshore jurisdictions include Seychelles, the Marshall Islands, the British Virgin Islands, St Kitts and Nevis, and many other island states in the Caribbean. Speaking about the Caribbean, offshore jurisdictions in the region are especially popular with business people from the USA, a country that has a Caribbean shore. Please read an article at the International Wealth website to find out about the legal issues related to the use of offshore companies by U.S. citizens.
The phrase ‘mid-shore jurisdiction’ is a recently coined term and it refers to a country that charges low taxes. It also refers to a country that offers certain tax benefits that are not available in onshore jurisdictions. In Cyprus, for example, your company’s global income can be tax-exempt under certain conditions.
A mid-shore country also may have a more relaxed attitude towards financial reporting even though some reporting is obligatory in all mid-shore jurisdictions. That is to say, a mid-shore country is in the middle between a zero-tax offshore country and a high-tax onshore country.
Contrary to offshore countries, mid-shore countries do not have any image problems. Offshores are often thought of as tax havens used for money laundering purposes. On the other hand, such mid-shore jurisdictions as Singapore or Hong Kong, for example, have a very strong international reputation. They are never associated with tax evasion even though their national legislations allow saving on taxes in legal ways.
Offshore and mid-shore jurisdictions: list of advantages
We would like to give you a brief list of main advantages that offshore and mid-shore countries offer.
Zero or low taxes. Normally, a company has to satisfy certain requirements to be tax-exempt or to pay taxes at low rates.
Simplicity of company registration. Because offshore jurisdictions need many companies to collect more in company registration fees, they make the process of company formation simple.
Availability of nominee services. In some but not all offshore jurisdictions, nominee services are allowed. These services enhance confidentiality protection.
Minimum reporting. The reporting requirements are more relaxed in offshore countries in comparison to onshore countries but they exist anyway. We repeat: conducting business operations in secrecy is impossible nowadays.
Low company maintenance costs. Maintaining an offshore company is less expensive than maintaining an onshore company but most offshore jurisdictions require some economic substance anyway.
Popular offshore jurisdictions
| Jurisdiction | Special features |
| British Virgin Islands | No income tax, no reporting requirements.
You can register a new company or buy a ready-made one. |
| Gibraltar | The income tax rate is 35% but it can be reduced significantly with ease. |
| Commonwealth of Dominica | No reporting requirements.
Only a fixed annual company registration fee is payable. Minimum requirements for company directors and UBOs. |
| Marshall Islands | Economic substance in the country is required.
Foreign companies pay only a company registration fee and no taxes. No financial nor accounting reports have to be submitted. |
| United Arab Emirates | Multiple free trade zones are available.
A local company pays a 5% VAT if it carries out business operations in the UAE. Reporting is not required but record keeping is obligatory. |
| Panama | Acquiring a local tax number is possible if the company submits financial and accounting reports.
There is a Register of beneficiary company owners but it is not accessible to the public. Incomes derived from outside the country are not taxed in Panama. |
| Saint Kitts and Nevis | LLCs are exempted from taxes but they have to keep records.
The amount of the company registration fee depends on the amount of the company’s authorized capital. No strict reporting requirements. |
| Seychelles | Foreign companies are tax-exempt. They pay only an annual fee whose amount depends on the company’s authorized capital.
Audit is not necessary and no reporting is required. You can register a new company or buy a ready-made one. |
Popular mid-shore jurisdictions
| Jurisdiction | Special features |
| Hong Kong | Financial reporting is required.
Taxes are payable only on the profits derived inside the jurisdiction and the rates are between 8.25% and 16.5%. A public register of company directors and shareholders is kept. |
| Cyprus | The corporate income tax rate is 12.5%. A defense tax is payable on some types of income.
Foreigners are better off opening limited liability companies in the country. The Business Register is open to the public. Nominee services are allowed. |
| Great Britain | A jurisdiction with a good reputation and opportunities for tax optimization.
Information about company owners is available to the public but nominee services are legal. No currency control is applied in the country. |
| Malta | The income tax rate is set at 35% but it can be reduced to 5% in legal ways. Some types of income are tax-exempt.
Confidentiality protection is at a high level: unauthorized disclosure of information leads to a serious fine. Maltese-based companies can be used for regulated activities such as online casinos or Forex trade. |